europe divisonal seminar 2010 - ab inbev...new consumers and occasions approach expand view of...

SABMillerEurope seminarAlan Clark Managing Director, SABMiller Europe

Doug Brodman Managing Director, Czech Republic

Jamie Wilson Finance Director, SABMiller Europe

Gary Leibowitz, SVP Investor RelationsLondon, 27th & 28th September 2010

New York, 29th September 2010

© SABMiller plc 2010 2Europe Divisional Seminar September 2010

Forward looking statements

This presentation includes ‘forward-looking statements’. These statements contain the words “anticipate”, “believe”, “intend”, “estimate”, “expect” and words of similar meaning. All statements other than statements of historical facts included in this presentation, including, without limitation, those regarding the Company’s financial position, business strategy, plans and objectives ofmanagement for future operations (including development plans and objectives relating to the Company’s products and services) are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which the Company will operate in the future. These forward-looking statements speak only as at the date of this presentation. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

All references to “EBIT” in this presentation refer to earnings before interest, tax, amortization of intangible assets and exceptional items. All references to “organic” mean as adjusted to exclude the impact of acquisitions, while all references to “constant currency” mean as adjusted to exclude the impact of movements in foreign currency exchange rates in the translation of our results.


Our speakers today

Alan Clark – career background

1985 Lecturer in Psychology, University of South Africa

1988 Associate Professor of Psychology, Vista University, SA

1990 Training and Development Manager, SAB Ltd

1994 General Manager, Alrode Brewery, SAB Ltd

1996 Operations Director, Northern Regions, SAB Ltd

2000 Marketing Director, SAB Ltd

2001 Managing Director, Amalgamated Beverage Industries

2003 Managing Director, SABMiller Europe


Our speakers today

Jamie Wilson – career background

1982 Corporate Tax Manager, Deloitte Haskins & Sells

1987 - 1999 Group Finance Director, Highland Distillers Plc

1999 Executive Chairman, Maxxium BV

2000 Managing Director, Remy Cointreau SA

2001 - 2004 Strategy / Finance Director, Scottish & Newcastle Plc

2005 SVP Distributors, Miller Brewing Company

2006 Managing Director, SABMiller Russia

2008 Managing Director, SABMiller Central Europe

2010 Finance Director, SABMiller Europe


Our speakers today

Douglas Brodman – career background

1992 Vice President Sales – Heineken U.S.

1994 Vice President Northeast Business Unit – Stroh Brewing Company

1999 Region Vice President – Miller Brewing Company

2001 Vice President, National Accounts – Miller Brewing Company

2002 Senior Vice President, Sales & Distribution – Miller Brewing Company

2006 Senior Vice President, Miller International

2009 Managing Director - Plzensky Prazdroj; Czech Republic


Europe in context

Volumes* Revenue EBITA**

* Excludes contract brewing, includes soft drinks and other alcoholic beverages ** Before corporate costs and excluding exceptional items and the amortisation of intangible assets (excluding software)

Latin America Europe North America South Africa Africa Asia

Europe – a significant contributor to group EBITA**Twelve months to 31 March 2010

21%

17%

17%

17%

11%

17%22%

21%

20%

20%

10%

7%

30%

19%14%

22%

13%2%


Significant long term profit growth with trajectory impacted by crisis

Organic CC 2005-2010 EBITA CAGR: 15%

Reported EBITA $m

0

100

200

300

400

500

600

700

800

900

1000

F05 F06 F07 F08 F09 F100

5

10

15

20

25

30

35

40

45

50

F05 F06 F07 F08 F09 F10

Volume mhl

CAGR 6.5%CAGR 9%


Update on Industry Context


Driving the beer category

In a backdrop of economic growth SABMiller:

Stimulated growth in beer consumption

� Real beer price declines further fuelled the trend

� Beer took share of total alcohol

Rapidly developed local full brand portfolios

� Leading power brands

� Strong consumer equity, refreshment for a new generation

Built strong positions in fragmented on and off premise

M&A and bolt-on acquisitions deliver real value


Volumes have declined across Europe, with some recovery expected in coming years

Europe volumes 2004-2010e

Source: Canadean

502514

537559 551

525507

300

600

2004 2005 2006 2007 2008 2009 2010

mHL100979599106114116

2007 2008 2009 2010 2011 2012 2013

1413131516

2020

2012 20132007 2008 2009 2010 2011

Russia 2007-2013f

Romania 2007-2013f

35353534343536

2007 2008 2009 2010 2011 2012 2013

Poland 2007-2013f

Source: Internal Estimates and ForecastsNote: Russia forecast includes risk impact of possible regulatory changes

Key market volumes & forecasts


Continuing shift from on to off, with strengthening modern trade

Czech: on & off evolutionmarket share %

Poland: channel split %

47.6

46.8

46.045.6

46.246.7

47.8

48.849.4

52.4

53.2

54.054.4

53.853.3

52.2

51.250.6

49.5

52.552.0

50.5

47.548.0

44

45

46

47

48

49

50

51

52

53

54

55

56

1998 2000 2002 2004 2006 2008 2010

Source: Czech Beer and Malt Association Source: ACNielsen, GfK, internal analysis

6057

23

100% 100%

27

16

2007 2010

On Trade

Traditional Trade

Modern Trade

17on premise

off premise


5

10

15

20

2005 2006 2007 2008 2009 2010

25

30

35

40

45

2005 2006 2007 2008 2009 2010

We expect the premiumisation trend to continue; disruption during the crisis

SABMiller over-indexes in super premium, premium and mainstream vs. economy

premium / super premium share of Beer (%)

Russia, Czech

Romania, Poland, Ukraine

SABMiller share of price segments (MAT % Jun 2010)

Source: Consolidation of external data providers – SABME footprint

18.8

22.6

25.5

5.4

16.7

19.6

SuperPremium

Off

PremiumOff

MainstreamOff

EconomyOff

Total Off TotalMarket

Russia

Czech

Romania

Ukraine

Poland


Responsible alcohol and excise

� Requires engaged response from industry and individual brewers

� Self regulation & responsible industry behaviour essential

� Challenging excise environment e.g.

− 2008: Russia + 32%, UK + 17.8%

− 2009: Poland + 13.6%, Russia +9.5%, Netherlands +30%, Ukraine +93%

− 2010: Czech + 33%, Romania +11.4% (Euro effect), Russia +200%, Ukraine +23%


Sources of growth will continue to evolve

�Growing the total beer user-base

�Focus on product quality and availability

�Raising marketing support

�M&A opportunities fuel growth & consolidation

�Growing the total beer user-base

�Focus on product quality and availability

�Raising marketing support

�M&A opportunities fuel growth & consolidation

�Crisis takes toll on disposable income & volumes�Commodity spike�Excise pressure�Pricing above CPI�Fewer M&A opportunities�Share & revenue game

�Crisis takes toll on disposable income & volumes�Commodity spike�Excise pressure�Pricing above CPI�Fewer M&A opportunities�Share & revenue game

�Build excitement in beer category

�Further penetrate premium occasions & need states

�Give consumers ‘reasons’ to pay more

�Innovation becomes key

�Build excitement in beer category

�Further penetrate premium occasions & need states

�Give consumers ‘reasons’ to pay more

�Innovation becomes key

2008 2011

“Establishing the category”

“Build perceived benefits and value per serving”

Illus

trat

ive

Inde

x

“Revenue managed value growth”

Volume

Value


Business imperatives

Drive organic revenue growth

� In an expanded and more aspirational category

� With higher value points

� More sophisticated trade partners

� Whilst being seen as a positive social force


Europe’s operating model


Our ambition

Differentiate value delivery by market

Build country commercial focus and capability

Design for scale cost advantage and focus

Drive superior organic revenue growth and margin expansion


Strengthening leadership positions in large attractive markets

35.232.632.9

34.6

Jun F08 Jun F09 Jun F10 Jun F11

Czech

9.79.3

7.8

6.0


Poland

2.5

-1.2

1.6

-1.2


Romania

� Strength of mainstream brands Tyskie and Zubr

� Modern trade expansion

� Sharper portfolio focus:− Contain economy− Strengthen premium

� Timisoreana strength

� Leader in on-premise and local premium

� Expanding portfolio

� SABMiller share grows from 23.5% in F08 to 31.8% in F11 (Jun MAT)

Source: MEMRB, Gus, Internal Data

Market share gap vs no. 2 (MAT %)

� Continued strength of Pilsner Urquell brand

� Regional on-premise growth strategy

� Portfolio strengthened


Building premium portfolios in Russia,United Kingdom and Ukraine

Aug F11

181

Aug F10Nov F09

111

4

SABMiller super premium and premium 1 brand growth

in Ukraine (khl MAT)

1. Zolotaya Bochka, Kozel, Miller Genuine Draft

Peroni Nastro Azzurro growth in United Kingdom

(khl MAT)

SABMiller Russia super premium and premium

Market Share (%)

Aug F09

+34%

Aug F11Aug F10Aug F08

CAGR

� Selectively build premium portfolio

� Maintaining premium image and discipline

17.216.4

16.9

19.218.2

19.0

F08 F10F09

Volume

Value

� Recovering share in very competitive market

� Continued leadership in Moscow

� Expanded portfolio to build distribution scale

Source: Internal analysisSource: Business Analytica

� Seeding of super premium and premium brands

� Selective channels and cities


F08 F09 F10 F11E

F06 F07 F08 F09 F10 F11E

Driving value in mature markets

EBITA margin progression (domestic beer incremental bps)

Italy

Netherlands

175

90125

75

9030

� Build core brand value

� Consolidate significant mainstream positions

� Value enhancing behaviour

� Leverage regional strongholds

� Drive productivity



� New consumers and occasions

� Differentiate premium

� Strengthen core mainstream

� Win in priority channels

� Improve revenue management

Country management structure simplified to allow absolute focus on brands, customers, shoppers and consumers


� Debowe Mocne relaunch in Poland

� Establish craft credentials−Diligence in brewing−Stand-out packaging

New consumers and occasions

Approach� Expand view of addressable market

� Target most attractive opportunities

� Innovate on liquid, packaging, positioning, presentation, and activation

� Essa launch in Russia

� Female focus

� Accessible premium price-point

� ‘Heart of the evening’positioning

� Birell Semi-Dark non-alcoholic in Czech

� Extension of leading non-alcohol beer brand in Czech

� Ability to access ‘non-beer’ occasions


� Zolotaya Bochka Russia gaining share in Premium segment

� Success of Razlivnoe variant (at additional premium)

� 0.75l Bottle introduction

� Meaningful innovation

� Grolsch launched in Poland, Russia and Romania

� Targets being achieved

� Good rate of sale

� Pilsner Urquell making share gains in key markets

� Price index vs lead competitor up 10% in year in Czech

� Brand equity measures very strong

Differentiate premium

Approach� Capitalise on enduring trend to premium

� Country specific portfolios with relevant global and local premium brands

� Ladder premium price points


Romania: TimisoreanaMarket Share

Strengthen core mainstream

Approach� Distinct and relevant brand positions

� Keep brands fresh

� Upweight activation

Share gain F04 – F10 of +12%

0%

5%

10%

15%

20%

25%

30%

35%

F04 F05 F06 F07 F08 F09 F10

Source: Internal data based on consolidated market data

Share gain F05 – F10 of +11%

Poland: Tyskie and ZubrMarket Share

0%

5%

10%

15%

20%

F05 F06 F07 F08 F09 F10


Leading on-premise share in Czech 2

volume share %

Growing share in KAs in Romania 3

volume share %

Win in priority channels

Approach� Clear outlet segmentation and prioritisation

� Deep understanding of customers, consumers and shoppers

� Differentiated and tailored execution

� Close channel partnerships, favouringperformance based incentives

3. Source: Internal Analysis

32.329.8

27.9

F08 F09 F10

1. Source: Business Analytica

30.228.1

24.2

20

2007 2008 2009 2010

Super premium and premium leaders in Moscow KAs 1

volume share %

50.450.850.551.951.3

2. Source: Internal Analysis: keg & tank only


From pricing to revenue management


Content

Context

� Why is revenue management important?

Overall approach

� What do we mean by revenue management?

Case studies

� How are we applying our approach?

Summary

� What are the key takeaways?


‘Our perspective’Profitable top line growth to create sources of value

Driving the growth “smartly” holds most potential

Offset value eroding pressures

Revenue management contextWhy is revenue management important?

Competitors

Fighting for volume share

Value leakage

Macro Environment

“Fragile”, recovering from economic downturn

Consumers

Getting more affluent

Demanding more for their money

Customers

Consolidating

Differentiating


Overall approachWhat do we mean by revenue management?

It is a systematic management approach to driving sustainableprofitable top line growth through price, volume and mix

It is aligning the consumer oriented brand marketing efforts and customer oriented sales efforts

� Price plays a strong role in the marketing mix / brand positioning

� Price influences the volumes and mix sold by channel / pack / occasion

It is our way of doing business to grow the top line


Principles

Techniques

Processes

Organization

Tools

What is it?

Category pricing

Pricing the overall portfolio appropriately to capture maximum value

1

Brand / pack / channel /

region (BPCR) architecture

Pricing each brand/pack within the port folio to optimize value within channel

2

Trade terms management

Establish rules for trade terms that support fulfillment of joint customer objectives

3

Promotional strategy and management

Setting rules for consumer price reductions that help achieve consumer and customer objectives

4

Overall approachHow do we approach revenue management?


Examples and case studies 1. Category pricing - how do we approach it?

Regular evaluation of the beer category pricing from four key perspectives: consumer, customer, competitor and communication

Consumer assessment includes benchmarking the beer pricing vs other beverages (see above), beer affordability, demand elasticity and category attractiveness

Price per liter comparison Price per pack comparison

238

143

100

152

Cola (0.25 l)

Mineral water (0.33 l)

GA 10 (0.5 l)

PU 12 (0.5 l)

119

105

100

150On trade price benchmarking

Category pricing: Pricing the overall portfolio appropriately vis-à-vis the consumers, customers and competitors to capture maximum value


Gambrinus 10° Gambrinus 11° Gambrinus 12°

Examples and case studies 2. BPCR architecture – Gambrinus 11 introduction

� Most Czech beer brands have traditionally fallen into one of the two gravities: 10 or 12

� Recent trend has seen the growth of 11 degree gravity segment, mostly at premium pricing

� Prazdroj launched in 2008 Gambrinus 11 with a price between that of 10 and 12 variants

� Gambrinus 11 is now, 2 years after launch, a clear leader in the 11 degree gravity segment

BPCR architecture:Pricing each brand / pack within the portfolio right for maximum value


Examples and case studies 2. BPCR architecture – case study Gambrinus 11

Gambrinus 11°brand pricing ladder Gambrinus 11°volum e development

PriceCKZ/500 ml

VolumeIndex vs yr 1

0

2

4

6

8

10

12

14

16

10°degree 11°degree 12°degree

Launched in 2008

Gambrinus variant

390370

300275

100

F09 F10 F11

On-trade

Off-trade

Fiscal year



Examples and case studies 2. BPCR architecture – Gambrinus 11, 330 ml bottle

� Introduction of Gambrinus 11, 330 ml non returnable bottle in Oct 2010

� Premium pricing

� Taking a ‘consistently refreshing’ approach to the brand, building on Gambrinus 11 success so far− Targeting LDAC on trade consumers− Driving new consumption occasions− Bringing ‘new news’ into the category


Examples and case studies 2. BPCR architecture – case study Frisco

� Frisco is a flavored, malt-based alcoholic beverage

� Launched in F06 with a ‘clubbing’ positioning and super-premium pricing

� Re-launched in F09− Repositioned to ‘alcoholic refreshment’− Targeted at women as #1 alternative to beer− Redesigned the label − Launched a second variant− Re-aligned pricing

� Volumes have grown almost three-fold since the F09 re-launch

� Currently a clear leader in the flavored alcoholic beverages segment



8080

8090100

100

570

380

206

135110100

F06 F07 F08 F09 F10 F11E

Retail price indexdevelopment

Volume indexdevelopment

Frisco (flavored malt-based alcoholic beverage)

Examples and case studies 2. BPCR architecture – case study Frisco

Fiscal yearRepositioned brand, re-aligned pricing to achieve optimal reach for the consumption occasion


Examples and case studies 2. BPCR architecture – case study Master

� Master is a specialty beer brand launched in kegs in on trade to build credentials

� Bottled version was launched in June 2010− 355 ml NRB− Off trade focus to reach at home indulgence

occasion− Premium pricing

� Elevates the beer category presentation and experience

� Targets premium, home consumption occasions, appreciated by the beer lovers



Trade terms management: Setting rules for customer discounts and bonuses that support fulfillment of account objectives

Case studies 3. Trade terms management – how do we approach it?

� Key Accounts are growing and consolidating

� Winning in key accounts is therefore crucial

� Trade terms are one of the keys to winning in KA

� A trade term revision will mark a step change in our KA relationships, including:

Transactional

Pay for importance

% discount focus

Account contracts

Strategic

Pay for performance

Total margin focus

Joint business plans

From To

Performancebased

Traditionalapproach

Newapproach

Nonperformance

based

Discount structure


Sales volume impact(thousand hl)

Brand equity impact(perceived value)

Financial impact(ROI)

Key variables

KA

Brand pricing strategy

SKU

Depth, frequency and timing

Promo management: Setting rules for consumer price reductions that help achieve consumer and customer objectives

Examples and case studies4. Promo management – how do we approach it?


Promo management: Setting rules for consumer price reductions that help achieve consumer and customer objectives

Examples and case studies4. Promo management – case study cans

Can share in the Czech beer market is with ~6% off trade one of the lowest in Europe

� Legacy of conservative consumer

� High average price premium vs returnable bottles (150-170)

Prazdroj has an estimated 65% share of the can segment

Tactical can discounting in the season is delivering several objectives

� Growing Prazdroj volumes and share at above average brand prices

� Developing consumer repertoire & occasions


SummaryRevenue management has a firm position on our strategic agenda

Revenue management (RM) is an important commercial capability

� Addressing all top line drivers – volume, price, mix

� Focus on margin impact

� Aligning the actions across teams and functions

Brewers with leadership position in mature beer markets are in aparticularly advantageous position to leverage RM

� Ability to lead category value development

� Full product portfolio to optimize

� Scale to develop the specialist resources

Plzensky Prazdroj is implementing cutting edge RM approaches

� Developing and embedding new capability and thinking in the organization

� Leveraging SABM experience



�One system

�Lower costs

�New skills

�Productivity



Centralize procurement

Functionalize operations

Improve commercial systems and processes

Drive productivity

Business Capability Projects

Simplify, standardize, centralize, outsource


Improve commercial systems and processes

Winning Brands

Choiceful portfolio strategies; clear

relevant positionings;

compelling creative platforms;

excellent 360 activation

Tool: Marketing Way

Revenue Growth Management

Optimized brand, pack, price,

occasion, plans to grow revenue

Tools: Margin Minder

The Pricing Way

Innovation

Expand and premiumise

category and commercialize

innovation

Tool: Smartgate

Winning Instore

Superior shopper and customer plans

based on deep insights delivered

consistently

Tool: Segmentation trade survey

Marketing support

Optimized effectiveness and

efficiency of marketing and sales to drive

revenues and profit

Tool: Marketing

Effectiveness Toolkit

Relentless commercial performance culture



Brewery operations

Service levels

Distribution

Network complexity

� Performance variances between countries

� Drive WCM consistently

Objectives

� Improve forecast accuracy and planning

� Optimise inventory levels

� Greater focus on demand shaping within periods

� Rationalise logistics providers

� Improve productivity of warehousing

� Optimise source of supply

� Rationalise CapEx requirements



� Split reporting relationship − European OpCo responsible for

replenishment cycle− Direct reporting lines for country technical

directors and supply planners− Country commercial companies

responsible for demand planning and delivery to customers

� Service level agreement between operations and country commercial companies

Europe steady state contribution to group: c$60m


Centralize procurement

� Functional expertise developed driving improved brewing and packaging costs

� Standardized inputs i.e. in trade activation materials

� Leverage scale in sourcing and CapEx

Europe steady state contribution to group: c$60m


Centralise Procurement

Further categories migrating

Start of region and country implementation

Centre-Led Implementation Phase 2011

Pre-Implementation Phase 2010

Design PhaseJuly 09 to Nov 09

Employees in place for first category teams

Transition planning for implementation

Accelerated waves sign first supplier contracts

Organisation and operational process design

Pilot of accelerated category waves


Productivity steps already taken

� Exceptional restructuring charges in F09:− Total restructuring costs $50m− Approximately 340 FTEs (NL, PL, CZ)

� Exceptional restructuring charges in F10:− Total restructuring costs $64m− 2 Breweries (PL, SK)− 2 maltings− PL depot rationalisation− 640 FTEs

� Estimated combined benefits− F11 $40m

� Cost savings re-invested in brand marketing


Key financials


Margin development

0

1,000

2,000

3,000

4,000

5,000

6,000

F05 F06 F07 F08 F09 F100%

5%

10%

15%

20%

25%

EBITA margin %Revenue

Top 4 margin: 22.5%

Source: SABMiller Annual Financial Statements

RevenueUSD (millions)

EBITA margin% Revenue


Input costs still impacting margins

� Relief on variable costs per HL in F10

� Hedging strategy objective is to smooth the peaks and troughs

� Evolving consumer preference to one-way packaging

� Transactional impact of currency

100

120

140

160

F07 F08 F09 F1010

20

30

40

50

60

Variable costs/hl Growth

Variable costs per HL USD F07=100

SABME Pack split

SABME key currency movements v €

80%

90%

100%

110%

120%

F07 F08 F09 F10

CZK PLN RON

46% 50% 51% 53%

54% 50% 49% 47%

0%

20%

40%

60%

80%

100%

F07 F08 F09 F10

Non Returnable Returnable


0

100

200

300

400

500

600

700

800

F06 F07 F08 F09 F10 F11B0%

10%

20%

30%

40%

50%

60%

Trade CapEx Other CapEx Capex % EBITDA

CapEx investment

CapEx peak behind us

� CapEx peak 57% of EBITDA

� F10: 30% of EBITDA

� F11: 23% of EBITDA

� F12-F14: est.25% - 30% of EBITDA− invested in trade assets and

capability at the appropriate rate

CapEx USD (millions) CapEx % EBITDA


Working capital focus delivering results

-200

-150

-100

-50

0

50

100

150

200

F06 F07 F08 F09 F10

Net Inventory / payables WC Receivables

+$5m

-$25m

-$153m

-$106m

Total average net working capital cash flow, USD

2012 net working capital target of 4% of revenue achieved in 2010

+$155m


Medium term outlook


SABMiller Europe Medium-term value driver outlook

Volume growth CAGR

� 2-4%

Revenue per hl CAGR

� 2-4%

EBIT margin

� +30-50 bps per year


Q & A

europe divisonal seminar 2010 - ab inbev...new consumers and occasions approach expand view of...

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